Tuesday, April 17, 2012

Should the unemployment rate be lower given the current job-vacancy rate?

"There were 3.5 million job openings at the end of February, the Labor Department said Tuesday, up from three million a year earlier. The job-vacancy rate, which measures job openings as a percentage of total jobs in the U.S., was 2.6%.

In the seven years before the recession, a vacancy rate of 2.6% was associated with an unemployment rate of about 5.7%. Now, the unemployment rate is much higher—it was 8.2% in March, down from 8.3% in February. That may augur a disturbing shift in the labor market that will keep more people out of work, slow the economy and make U.S. companies less profitable.

High job-vacancy rates come about because employers are having a hard time filling jobs. So they are associated with low unemployment rates. When vacancy rates are low, the opposite is true. Plot out unemployment rates against vacancy rates, and you get what is called the Beveridge curve, a downward-sloping line named after the late British economist William Beveridge.

But the Beveridge curve, nearly three years after the economy began to recover, looks different than it did before the recession struck in late 2007. Unemployment rates are much higher versus vacancy rates than they used to be. Shifts like that in the Beveridge curve suggest the labor market has become less efficient at matching workers with jobs, something that can happen when workers don't have the skills that employers need."

The problem could be a mismatch between the skills of the unemployed and the skills employers want (this is an example of structural unemployment). For those workers, they could be unemployed for a long time.

If there are alot of job vacancies relative to the total number of jobs it means employers are having a hard time getting workers and therefore the unemployment rate would normally be low unless there are structural problems

If there are alot of job vacancies relative to the total number of jobs it means employers are having a hard time getting workers and therefore the unemployment rate would normally be low unless there are structural problems

The 2.6% is "a reflection of the" "amount of jobs available" but not necessarily lower. As the article says, not long ago the 2.6% job vacancy rate meant a 5.7% unemployment rate but now the unemployemt rate is 8.2% so the question is why? The article suggests some structural issues.

I think Total jobs just means total jobs that people have. I think that is the denominator and the number of positions advertised is the numerator